Tuesday 24 October 2017

European shares fall as Burberry hits luxury sector

Sudip Kar-Gupta

EUROPEAN shares fell on Wednesday, led by luxury goods companies as a slowdown in sales growth at British group Burberry affected the sector and highlighted the weak macroeconomic environment.

The FTSEurofirst 300 index fell 0.4 percent to 1,034.54 points, while the Euro STOXX 50 index declined by 0.5 percent to 2,230.50 points.

Burberry plunged around 5 percent, dragging down French rival LVMH which slipped 2.5 percent, after Burberry reported a slowdown in quarterly sales growth.

Burberry's results highlighted the growing impact on companies from Europe's sovereign debt crisis, as well as from a slowdown in China, where runaway demand for high-end goods has previously managed to offset weaker trends in the United States and Europe.

"It's not a healthy environment. An economic environment based on low interest rates and quantitative easing is not sustainable," said Brown Shipley fund manager John Smith.


Burberry's weak results followed a clutch of weak corporate earnings from the United States that had also raised concerns that companies were increasingly feeling the pressure from the weak global economy.

Smith said his equity portfolio was "underweight" on financial and mining stocks and "overweight" on traditionally defensive sectors such as food and healthcare.

Central Markets senior broker Joe Neighbour said fresh signs of growing contagion from the European debt crisis were also affecting the region's equity markets, with Italy warning that it may want to tap euro zone aid to ease its borrowing costs.

"Italy's 10-year bond yields above 6 percent is adding to the pressure today," said Neighbour, who added he had sold the German DAX equity index in recent days.

The FTSEurofirst has managed to remain above the 1,000 point mark since breaking above that key level in late June, but has recorded four days of losses already in July, indicating that many traders are inclined to sell on the back of recent rallies due to persistent worries over the economy.


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